Overnight Developments

• European stocks are weaker with the European Stoxx down -0.81% and Sep S&Ps down -2.90 points. The dollar and Treasuries are higher on increased safe-haven demand as stocks falter. European bank stocks are leading financial shares lower after Allied Irish Banks Plc, Ireland’s second-biggest bank, dropped 8.2% after its first-half loss widened as bad debts rose. Standard Chartered Plc fell 6.3% after Royal Bank of Scotland Group Plc cut its recommendation on the bank to "hold" from "buy," citing weakness in capital-market related sales and pre-impairment profit that missed forecasts. Next Plc slid 7.4% and led retailers lower after Britain’s second-largest clothing retailer said consumer spending will be "more restrained" in the second half. Limiting losses in European stocks was the 4.0% jump in Electricite de France SA after the French government said that electricity prices would rise 3.4% starting Aug 15. Demand for dollars continues to weaken after the 3-month dollar Libor rate fell for the 16th consecutive session to a 2-3/4 month low of 0.424%.
• The Asian markets today closed mixed with Japan down -2.11%, Hong Kong +0.43%, China +0.37%, Taiwan +0.19%, Australia -0.65%, Singapore -0.43%, South Korea -0.10%, India +0.57%. Asian stocks were undercut after weaker-than-expected US economic data on home sales and factory orders renewed concerns about the strength of the global economy. Japanese exporters were pressured as the yen rose to an 8-month high against the dollar, which threatens to hurt the value of overseas sales when converted to the local currency. Canon, the world’s biggest maker of digital cameras, fell 4.3%, and Sony, which gets 22% of its sales from the US, slipped 3%. Toyota Motor dropped 1.6% and Honda Motor fell 2.2% after the companies posted declines in US auto sales last month of 3.2% and 2.0% respectively. The yield on Japanese 10-year government bonds fell below 1.00% for the first time in 7 years on speculation the strengthening yen will increase deflationary pressures.

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Overnight Developments

• European stocks are weaker with the European Stoxx down -0.81% and Sep S&Ps down -2.90 points. The dollar and Treasuries are higher on increased safe-haven demand as stocks falter. European bank stocks are leading financial shares lower after Allied Irish Banks Plc, Ireland’s second-biggest bank, dropped 8.2% after its first-half loss widened as bad debts rose. Standard Chartered Plc fell 6.3% after Royal Bank of Scotland Group Plc cut its recommendation on the bank to "hold" from "buy," citing weakness in capital-market related sales and pre-impairment profit that missed forecasts. Next Plc slid 7.4% and led retailers lower after Britain’s second-largest clothing retailer said consumer spending will be "more restrained" in the second half. Limiting losses in European stocks was the 4.0% jump in Electricite de France SA after the French government said that electricity prices would rise 3.4% starting Aug 15. Demand for dollars continues to weaken after the 3-month dollar Libor rate fell for the 16th consecutive session to a 2-3/4 month low of 0.424%.
• The Asian markets today closed mixed with Japan down -2.11%, Hong Kong +0.43%, China +0.37%, Taiwan +0.19%, Australia -0.65%, Singapore -0.43%, South Korea -0.10%, India +0.57%. Asian stocks were undercut after weaker-than-expected US economic data on home sales and factory orders renewed concerns about the strength of the global economy. Japanese exporters were pressured as the yen rose to an 8-month high against the dollar, which threatens to hurt the value of overseas sales when converted to the local currency. Canon, the world’s biggest maker of digital cameras, fell 4.3%, and Sony, which gets 22% of its sales from the US, slipped 3%. Toyota Motor dropped 1.6% and Honda Motor fell 2.2% after the companies posted declines in US auto sales last month of 3.2% and 2.0% respectively. The yield on Japanese 10-year government bonds fell below 1.00% for the first time in 7 years on speculation the strengthening yen will increase deflationary pressures.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -0.31% and Sep S&Ps up +5.50 points. Signs that that the economic recovery may falter are undercutting European stock prices on concern that slower growth will hurt the outlook for earnings. The Jun Euro-Zone PMI composite, a gauge of growth in European manufacturing and service industries, fell to 56.0 from 56.4 in May, close to market expectations. The spread between the yield on Greek government bonds over comparable German bunds widened to 751 bp, a 1-1/2 month high, while a draft document from the European Commission proposes that European governments will consider imposing a charge on bond sales by countries that violate debt rules. Basic resource and mining companies fell on demand concerns with BHP Billiton down 1.4%, Rio Tinto falling 1.5% and Xstrata Plc retreating 1.8%. Holcim dropped 1.3% after Morgan Stanley downgraded the second-largest cement maker to "underweight" fr om "equal weight." According to the chief investment officer at Citigroup’s Private Bank, global equities are set to fall as the withdrawal of stimulus measures around the world causes a slowdown in earnings growth, while UBS AG and Goldman Sachs Group strategists predict the euro’s 14% slide against the dollar will boost earnings at European companies at least 25% this year and they recommend buying European stocks because the global economic rebound will overcome concerns that governments will default in Europe.
• The Asian markets today closed mostly lower with Japan down -1.87%, Hong Kong +0.18%, China -0.91%, Taiwan -0.40%, Australia -1.58%, Singapore -0.04%, South Korea -0.38%, India +0.04%. Asian stocks declined after the unexpected drop in May US existing home sales raised concern about the sustainability of the US economic recovery and demand for Asian goods. Asian commodity producers and exporters closed lower while Chinese property developers slumped after Shanghai housing sales in the first 5 months of this year fell -32.5% y/y, which indicates government measures to cool the real estate market are working. Toyota fell 1.7% and Honda lost 1.5% after both companies halted production at factories in southern China after two suppliers’ plants were closed by strikes, extending disputes to at least eight in the past month. Strikes have spread since Honda agreed last month to raise wages at a parts supplier by 24% to end a work stoppage as unrest at foreign-owned factories in China reflects a shrinking supply of low-cost labor in the nation.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.14% and Sep S&Ps down -4.70 points. The euro weakened and the yield premium that investors demand to hold Spanish 10-year government bonds over German bunds widened to a record 219 bp, the most since the euro’s debut in 1999, after the Spanish newspaper El Economista reported that the IMF, the EU and the US Treasury are putting together a credit line of as much as 250 billion euros ($307 billion) for Spain. The EU and the Spanish government denied the report. European stocks shrugged off the Spanish report and rallied with Celesio jumping 6.1% as Europe’s largest publicly traded drug wholesaler said it’s forming a joint venture with Phoenix Group in the Netherlands to distribute pharmaceuticals. Irish Life surged 9.5% after Deutsche Bank initiated coverage of the bank with a "buy" recommendation, while automobile stocks fell and limited gains in the overall market with Daimler AG fa lling 2.4% and Michelin & Cie. dropping 1.4%.
• The Asian markets today closed higher with Japan up +1.81%, Hong Kong, China and Taiwan all closed for holiday, Australia +1.20%, Singapore +1.02%, South Korea +0.90%, India +0.29%. Asian stock markets closed higher, led by gains in technology shares, after Taiwan Semiconductor Manufacturing Co.’s projection for global demand boosted US chip sales. Raw materials and commodity producers also gained on speculation for increased demand and after the price of copper climbed to a 1-1/2 week high. Japan’s Nintendo closed 4.7% higher after the company introduced its 3DS handheld device that displays games in 3 dimensions without requiring glasses at the annual E3 game conference in Los Angeles. Nomura Holdings predicts that the "bubble" in China’s property market is going to burst very quickly, with prices set to fall as much as 20% in the next 12 to 18 months. China’s real-estate prices jumped 12.4% across 70 cities in May, adding to the 12.8% surge in April tha t was the most since the data series began in 2005. In its annual report released on its website yesterday, the China Banking Regulatory Commission warned of growing credit risks in the country’s real-estate industry and that the risks associated with home mortgages are growing and a "chain effect" may reappear in real-estate development loans.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -1.14% and June S&Ps up +4.30 points. The dollar is little changed while the price of gold climbed to a record after Fitch Ratings said Britain’s deficit challenge is "formidable," adding to concerns that the European sovereign-debt crisis is spreading. Fitch said the UK is lagging behind other European nations in publishing deficit-reduction plans as investor concerns over government debt loads increase and that British Prime Minister Cameron needs to accelerate budget-deficit cuts to protect the nation’s top credit rating. Most German utility companies weakened, led by 3% declines in E.ON AG and RWE AG, after the German government signaled it will raise new taxes on the nuclear power industry to increase government revenue. The yield on German 10-year bunds declined to a record low of 2.50% on increased safe-haven demand due to sagging equity markets and funding concerns, with the yield spread between Spanish 10-year government bonds and German bunds widening to 213 bp, a level not seen since before the introduction of the euro in 1999. On the positive side, April German industrial production rose a more-than-expected +0.9% m/m as a weaker euro boosted export demand and local companies stepped up spending.
• The Asian markets today closed mostly higher with Japan up +0.18%, Hong Kong +0.56%, China +0.13%, Taiwan -0.08%, Australia +1.28%, Singapore -0.19%, South Korea +0.79%, India -0.98%. Asian stocks rose for the first time in 3 days after comments from Fed Chairman Bernanke last night that the US recovery is moving at a "moderate" pace. Asian exporters that have exposure to the US gained after the Fed Chairman’s comments eased concern that the US economy may slow. Asian raw material and commodity producers gained amid speculation global growth will revive metals demand while gold producers strengthened after the price of gold climbed to a record. Zhang Liqun, a researcher at China’s State Council Development and Research Center said that Chinese economic growth may slip to between 10% and 11% this quarter as industrial production and investment expand at a slower pace, and that "the 11.9% growth rate in Q1 won’t be sustained and the outlook for investmen t and export growth is uncertain." China is maintaining stimulus measures as Europe’s efforts to rein in its fiscal deficits slow the economy and threatens demand for its exports.

Overnight U.S. Stock News

• June S&Ps this morning are trading up +4.30 points. The US stock market yesterday fluctuated on either side of unchanged into early afternoon when it plunged into the close and finished on its low (Dow Jones -1.16%, S&P 500 -1.35%, Nasdaq Composite -2.04%). The Dow Jones, S&P 500 and the Nasdaq all dropped to 1-1/2 week lows. Bearish factors included (1) carry-over weakness from a slump in European equity markets after a weekend meeting of the Group of 20 finance chiefs failed to agree on steps to ensure the economic recovery will strengthen and the post meeting statement in which the G-20 finance ministers said that the global economic rebound faces "significant challenges," (2) weakness in financial stocks after the Financial Crisis Inquiry Commission subpoenaed Goldman Sachs for not complying with requests for documents in the financial-crisis probe, (3) weakness in raw materials and commodity producers after copper prices plunged to an 8- month low on concern that slowing global economic growth will curb demand for industrial metals and other commodities, (4) the action by Daiwa Capital Markets to cut its GDP growth estimate for the US for the second half of this year to annualized growth of between 2.25% to 2.5%, down from a previous forecast of 3.0%, as the sovereign-debt crisis in Europe, fading government support and persistently high joblessness will weigh on expansion in the second half of the year, and (5) comments from Fed Vice Chairman appointee Yellen who said that while there appear to be improvements in the global economy, "significant headwinds to stability remain."
• Bullish factors included (1) the unexpected increase in Apr German factory orders, which eased concern that the European debt crisis was derailing the economic recovery, (2) the action by a Hungarian government official to tone down comments about his country potentially defaulting on its debt, (3) the prediction from Blackstone Group LP that with the options market showing confidence in stocks falling to a record low, it signals that now is the time to buy equities, and (4) the unexpected increase in Apr consumer credit which rose for the first time in 3 months (+$1.0 billion versus expectations of -$1.0 billion).

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Gold is the most popular precious metal as an investment with investors having a variety of ways to gain exposure to this asset class ranging from bullion, coin or jewellery ownership right the way through to certificates, exchange traded funds, derivatives or shares.

Capital Spreads offer exposure through spread betting with their “Rolling Gold” product.

What makes it move?

Like all investments the price of Gold is ultimately driven by supply and demand but unlike some other commodities most of the Gold that has ever been mined is still in existence and could potentially come onto the market if the price was attractive enough. This makes the demand side of the equation a greater factor than the supply side with sentiment being a much bigger driver of prices than the annual production of Gold.  So what makes DEMAND for gold go up?

Inflation.

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The consequence of which is the loss of value of money..in effect your hard earned money will buy you less over time. Gold is the only asset class that has historically kept its buying power against a back drop of inflation. If Investors are concerned about inflation then they will buy Gold and when they are less worried about inflation they will sell gold.

Safe Haven.

Often in an economic crisis investors will sell risky asset classes (like equities) to buy safer asset classes such as government bonds and Gold. When the world looks like a risky place for investors we sometimes see what is known as “a flight to quality” and investors will scramble to put their money in an area that is considered safe in a time of uncertainty.

USD

Gold is priced in USD’s and historically has an inverse relationship to the currency i.e. if the $ weakens then the gold price should rise as Investors try to protect themselves from a falling $ by buying Gold which should keep its relative purchasing power. In times of uncertainty this relationship can break down as both Gold and the $ are considered “safe havens” and investors may put money in both asset classes driving prices in both higher together.

Seasonal Demand.

The Indian wedding season runs from late September to December and wealthy Indian brides can be draped in as much as $1.5 mil of 24 carat gold. It is such an important part of the culture that if you can’t afford any gold at your wedding then you simply don’t get married! According to research by JP Morgan the Indian wedding season has boosted the price of Gold every year since 2002 with September showing the biggest average increase. Past performance is no guarantee of future movements but this seasonal demand does place a natural upward bias on the commodity during those months.

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